EX-99.1 2 exhibit991.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1

q219supplementalcoverpage.jpg

Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Table of Contents
 
Page
Corporate Data and Financial Highlights
 
1
2
3
4
5
6
7
8-9
10
Portfolio Data
 
11
12-16
17
18
19-21
22
23
24
Development
 
25
26
27
Debt and Capitalization Data
 
28
29-30
31-33
34-37
This Supplemental Financial Report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, among other things, information concerning lease expirations, debt maturities, potential investments, development and redevelopment activity, projected construction costs, dispositions and other forward-looking financial data. In some instances, forward-looking statements can be identified by the use of forward-looking terminology such as “expect,” “future,” “will,” “would,” “pursue,” or “project” and variations of such words and similar expressions that do not relate to historical matters. Forward-looking statements are based on Kilroy Realty Corporation’s current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of Kilroy Realty Corporation’s control. Accordingly, actual performance, results and events may vary materially from those indicated or implied in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in the forward-looking statements, including, among others: global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants; adverse economic or real estate conditions generally, and specifically, in the States of California and Washington; risks associated with our investment in real estate assets, which are illiquid, and with trends in the real estate industry; defaults on or non-renewal of leases by tenants; any significant downturn in tenants’ businesses; our ability to re-lease property at or above current market rates; costs to comply with government regulations, including environmental remediation; the availability of cash for distribution and debt service and exposure to risk of default under debt obligations; increases in interest rates and our ability to manage interest rate exposure; the availability of financing on attractive terms or at all, which may adversely impact our future interest expense and our ability to pursue development, redevelopment and acquisition opportunities and refinance existing debt; a decline in real estate asset valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing, and which may result in write-offs or impairment charges; significant competition, which may decrease the occupancy and rental rates of properties; potential losses that may not be covered by insurance; the ability to successfully complete acquisitions and dispositions on announced terms; the ability to successfully operate acquired, developed and redeveloped properties; the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts; delays or refusals in obtaining all necessary zoning, land use and other required entitlements, governmental permits and authorizations for our development and redevelopment properties; increases in anticipated capital expenditures, tenant improvement and/or leasing costs; defaults on leases for land on which some of our properties are located; adverse changes to, or enactment or implementations of, tax laws or other applicable laws, regulations or legislation, as well as business and consumer reactions to such changes; risks associated with joint venture investments, including our lack of sole decision-making authority, our reliance on co-venturers' financial condition and disputes between us and our co-venturers; environmental uncertainties and risks related to natural disasters; and our ability to maintain our status as a REIT. These factors are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussion of additional factors that could materially adversely affect Kilroy Realty Corporation’s business and financial performance, see the factors included under the caption “Risk Factors” in Kilroy Realty Corporation’s annual report on Form 10-K for the year ended December 31, 2018, and its other filings with the Securities and Exchange Commission. All forward-looking statements are based on currently available information and speak only as of the dates on which they are made. Kilroy Realty Corporation assumes no obligation to update any forward-looking statement made in this Supplemental Financial Report that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws.

Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Company Background

Kilroy Realty Corporation (NYSE: KRC), a publicly traded real estate investment trust and member of the S&P MidCap 400 Index, is one of the West Coast’s premier landlords. The Company has over 70 years of experience developing, acquiring and managing office and mixed-use real estate assets. At June 30, 2019, the Company’s stabilized portfolio totaled approximately 13.5 million square feet of office space that was 93.8% occupied, located in the coastal regions of Los Angeles, Orange County, San Diego, the San Francisco Bay Area and Greater Seattle and 200 residential units located in the Hollywood submarket of Los Angeles. 
Board of Directors
 
Executive Management Team
 
Investor Relations
John Kilroy
Chairman
 
John Kilroy
President and CEO
 
12200 W. Olympic Blvd., Suite 200
Los Angeles, CA 90064
(310) 481-8400
Web: www.kilroyrealty.com
E-mail: investorrelations@kilroyrealty.com
Edward F. Brennan, PhD
Lead Independent
 
Jeffrey C. Hawken
Executive VP and COO
 
Jolie Hunt
 
 
Tracy Murphy
Executive VP, Life Science
 
Scott S. Ingraham
 
 
Robert Paratte
Executive VP, Leasing and Business Development
 
Gary R. Stevenson
 
 
Tyler H. Rose
Executive VP and CFO
 
Peter B. Stoneberg
 
 
Steve Rosetta
Executive VP and CIO
 
 
 
 
Heidi R. Roth
Executive VP and Chief Administrative Officer
 
 
 
 
Justin W. Smart
Executive VP, Development and Construction Services
 
Equity Research Coverage
 
 
 
 
 
Bank of America Merrill Lynch
 
 
J.P. Morgan
 
James Feldman
(646) 855-5808
 
Anthony Paolone
(212) 622-6682
BMO Capital Markets Corp.
 
 
KeyBanc Capital Markets
 
John P. Kim
(212) 885-4115
 
Craig Mailman
(917) 368-2316
BTIG
 
 
RBC Capital Markets
 
Thomas Catherwood
(212) 738-6140
 
Mike Carroll
(440) 715-2649
Citigroup Investment Research
 
 
Robert W. Baird & Co.
 
Michael Bilerman
(212) 816-1383
 
David B. Rodgers
(216) 737-7341
Deutsche Bank Securities, Inc.
 
 
Scotiabank
 
Derek Johnston
(210) 250-5683
 
Nicholas Yulico
(212) 225-6904
Evercore ISI
 
 
Stifel, Nicolaus & Company
 
Steve Sakwa
(212) 446-9462
 
John W. Guinee III
(443) 224-1307
Green Street Advisors
 
 
Wells Fargo
 
Daniel Ismail
(949) 640-8780
 
Blaine Heck
(443) 263-6529
 
Kilroy Realty Corporation is followed by the analysts listed above. Please note that any opinions, estimates or forecasts regarding Kilroy Realty Corporation’s performance made by these analysts are theirs alone and do not represent opinions, forecasts or predictions of Kilroy Realty Corporation or its management. Kilroy Realty Corporation does not by its reference above or distribution imply its endorsement of or concurrence with such information, conclusions or recommendations.

1
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Executive Summary
 
 
 
Quarterly Financial Highlights
 
Quarterly Operating Highlights
 
 
 
• Net income available to common stockholders per share of $0.41
 
• Stabilized portfolio was 93.8% occupied and 97.2% leased at quarter-end
 
 
 
• FFO per share of $0.95
 
• 851,002 square feet of leases commenced in the stabilized portfolio
 
 
 
• Revenues of $200.5 million
 
• 897,918 square feet of leases executed in the stabilized portfolio
 
 
 
• Same Store GAAP NOI increased 4.7% compared to the prior year
 
- GAAP rents increased approximately 68.7% from prior levels
 
 
 
• Same Store Cash NOI decreased 5.6% compared to the prior year
 
- Cash rents increased approximately 41.3% from prior levels
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital Markets Highlights
 
Strategic Highlights
 
 
 
• In May, increased the regular quarterly cash dividend to common stockholders by
 
• In May, completed the sale of an 84,000 square foot operating property in the 101
   6.6% to $0.485 per share; an annualized rate of $1.94 per share
 
   Corridor submarket of Los Angeles for gross proceeds of $18.3 million
 
 
 
• In July 2019, fully and physically settled 5,000,000 shares of the Company’s
 
• In May and June, completed construction and commenced GAAP revenue on the
   common stock in connection with the August 2018 forward transaction for net 
 
   first phase of The Exchange on 16th, which represents approximately 52% of the
   proceeds of approximately $354.3 million, which was used to pay down our
 
   750,000 square foot development project located in San Francisco’s Mission Bay
   unsecured revolving credit facility
 
   district. The office component of the project is 100% leased to Dropbox
 
 
 
• As of the date of this report, $60.0 million was outstanding on our unsecured
 
• In June, added 100 Hooper, a 394,000 square foot development project located in
revolving credit facility
 
   San Francisco’s SOMA district, to the stabilized office portfolio. The office
 
 
   component is 100% leased and occupied by Adobe and the remaining 82,000 square
 
 
   feet of PDR space is approximately 86% leased and 20% occupied
 
 
 
 
 
• In June, executed a long-term lease with a Fortune 50 publicly-traded company for
 
 
   100% of 333 Dexter, a 635,000 square foot development project located in the South
 
 
   Lake Union submarket of Seattle
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 34-35 “Definitions Included in Supplemental.”

2
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Financial Highlights
(unaudited, $ in thousands, except per share amounts)
 
 
Three Months Ended
 
 
 
6/30/2019 (1) (2)
 
3/31/2019 (1)
 
12/31/2018 (2)
 
9/30/2018
 
6/30/2018 (2)
 
INCOME ITEMS:
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
200,492

 
$
201,202

 
$
190,842

 
$
186,562

 
$
187,072

 
 
Lease Termination Fees, net
1,824

 
1,888

 
1,293

 
431

 
1,093

 
 
Net Operating Income (3)
141,916

 
142,442

 
137,636

 
131,020

 
129,465

 
 
Capitalized Interest and Debt Costs
20,880

 
19,437

 
19,519

 
19,156

 
15,811

 
 
Net Income Available to Common Stockholders
42,194

 
36,903

 
160,220

 
34,400

 
27,549

 
 
EBITDA, as adjusted (3) (4)
120,025

 
119,172

 
113,883

 
112,085

 
108,473

 
 
Funds From Operations (4) (5) (6) (7)
99,905

 
99,812

 
81,330

 
94,247

 
88,629

 
 
Net Income Available to Common Stockholders per common share – diluted (6)
$
0.41

 
$
0.36

 
$
1.58

 
$
0.33

 
$
0.27

 
 
Funds From Operations per common share – diluted (4) (6) (7)
$
0.95

 
$
0.95

 
$
0.78

 
$
0.90

 
$
0.86

 
LIQUIDITY ITEMS:
 
 
 
 
 
 
 
 
 
 
 
Funds Available for Distribution (5) (6) (8)
$
52,369

 
$
65,934

 
$
51,792

 
$
68,758

 
$
51,953

 
 
Dividends per common share (6)
$
0.485

 
$
0.455

 
$
0.455

 
$
0.455

 
$
0.455

 
RATIOS:
 
 
 
 
 
 
 
 
 
 
 
Net Operating Income Margins
70.8
%
 
70.8
%
 
72.1
%
 
70.2
%
 
69.2
%
 
 
Fixed Charge Coverage Ratio
3.9x

 
4.0x

 
3.7x

 
3.8x

 
3.9x

 
 
FFO Payout Ratio (4) (7)
50.0
%
 
46.9
%
 
57.5
%
 
49.6
%
 
52.7
%
 
 
FAD Payout Ratio (8)
95.4
%
 
71.1
%
 
90.3
%
 
68.0
%
 
89.9
%
 
ASSETS:
 
 
 
 
 
 
 
 
 
 
 
Real Estate Held for Investment before Depreciation
$
8,824,558

 
$
8,616,167

 
$
8,426,632

 
$
8,329,580

 
$
8,138,413

 
 
Total Assets
8,094,721

 
7,883,987

 
7,765,707

 
7,562,236

 
7,384,784

 
CAPITALIZATION: (9)
 
 
 
 
 
 
 
 
 
 
 
Total Debt
$
3,210,427

 
$
3,020,882

 
$
2,955,811

 
$
2,891,725

 
$
2,807,627

 
 
Total Common Equity and Noncontrolling Interests in the Operating Partnership
7,602,085

 
7,823,144

 
6,462,321

 
7,367,745

 
7,762,978

 
 
Total Market Capitalization
10,812,512

 
10,844,026

 
9,418,132

 
10,259,470

 
10,570,605

 
 
Total Debt / Total Market Capitalization
29.7
%
 
27.9
%
 
31.4
%
 
28.2
%
 
26.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
______________________________________________________
Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 34-35 “Definitions Included in Supplemental.”
(1)
The Company adopted ASC 842 “Leases” effective January 1, 2019. Please refer to page 10 for a description of the impact of the adoption on our consolidated statements of operations.
(2)
Net Income Available to Common Stockholders includes $7.2 million of gains on sale of depreciable operating properties for the three months ended June 30, 2019, $142.9 million of gains on sales of depreciable operating properties, an $11.8 million gain on sale of land and a $12.6 million loss on early extinguishment of debt for the three months ended December 31, 2018 and $5.6 million of provision for bad debts for the three months ended June 30, 2018.
(3)
Please refer to page 10 for the calculation of Net Operating Income and pages 36-37 for reconciliations of GAAP Net Income Available to Common Stockholders to Net Operating Income and EBITDA, as adjusted.
(4)
EBITDA, as adjusted, and Funds From Operations include a $11.8 million gain on sale of land and $5.6 million of provision for bad debts for the three months ended December 31, 2018 and June 30, 2018, respectively. The Company’s calculation of EBITDA, as adjusted, is the same as EBITDAre, as defined by NAREIT, as the Company does not have any unconsolidated joint ventures.
(5)
Please refer to page 8 for reconciliations of GAAP Net Income Available to Common Stockholders to Funds From Operations available to common stockholders and unitholders and Funds Available for Distribution to common stockholders and unitholders and page 9 for a reconciliation of GAAP Net Cash Provided by Operating Activities to Funds Available for Distribution to common stockholders and unitholders.
(6)
Reported amounts are attributable to common stockholders, common unitholders and restricted stock unit holders.
(7)
Funds From Operations for the three months ended December 31, 2018 includes a $12.6 million loss on early extinguishment of debt.
(8)
Funds Available for Distribution for the three months ended December 31, 2018 includes a $11.8 million cash loss on early extinguishment of debt.
(9)
Please refer to page 28 for additional information regarding our capital structure.

3
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Net Income Available to Common Stockholders / FFO Guidance and Outlook
(unaudited, $ and shares/units in thousands, except per share amounts)

The Company is providing an updated guidance range of NAREIT-defined FFO per diluted share for its fiscal year 2019 of $3.67 to $3.78 per share with a midpoint of $3.73 per share.
 
 
 
Full Year 2019 Range
 
 
 
 
Low End
 
High End
 
 
Net income available to common stockholders per share - diluted
 
$
1.52

 
$
1.63

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted (1)
 
105,500

 
105,500

 
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
160,000

 
$
172,000

 
 
Adjustments:
 
 
 
 
 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
3,300

 
3,500

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
17,000

 
20,000

 
 
Depreciation and amortization of real estate assets
 
248,000

 
248,000

 
 
Gains on sales of depreciable real estate
 
(7,169
)
 
(7,169
)
 
 
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships
 
(26,500
)
 
(29,500
)
 
 
Funds From Operations (2)
 
$
394,631

 
$
406,831

 
 
 
 
 
 
 
 
 
Weighted average common shares and units outstanding - diluted (3)
 
107,500

 
107,500

 
 
 
 
 
 
 
 
 
FFO per common share/unit - diluted (3)
 
$
3.67

 
$
3.78

 
 
 
 
 
 
 
 

Key 2019 assumptions include:
•
Dispositions of approximately $150.0 million
•
Flat same store cash net operating income (2) 
•
Year-end occupancy of 94.0% to 95.0%
•
Total remaining development spending of approximately $250.0 million to $300.0 million
________________________
(1)
Calculated based on estimated weighted average shares outstanding including non-participating share-based awards.
(2)
See pages 32-33 for Management Statements on Funds From Operations and Same Store Cash Net Operating Income.
(3)
Calculated based on weighted average shares outstanding including participating and non-participating share-based awards, dilutive impact of stock options, contingently issuable shares, and shares issuable under forward equity sale agreements and assuming the exchange of all common limited partnership units outstanding. Reported amounts are attributable to common stockholders, common unitholders and restricted stock unitholders.

The Company’s guidance estimates for the full year 2019, and the reconciliation of net income available to common stockholders per share - diluted and FFO per share and unit - diluted included within this report, reflect management’s views on current and future market conditions, including assumptions with respect to rental rates, occupancy levels, and the earnings impact of the events referenced in this report. Although these guidance estimates reflect the impact on the Company’s operating results of an assumed range of future disposition activity, these guidance estimates do not include any estimates of possible future gains or losses from possible future dispositions because the magnitude of gains or losses on sales of depreciable operating properties, if any, will depend on the sales price and depreciated cost basis of the disposed assets at the time of disposition, information that is not known at the time the Company provides guidance, and the timing of any gain recognition will depend on the closing of the dispositions, information that is also not known at the time the Company provides guidance and may occur after the relevant guidance period. We caution you not to place undue reliance on our assumed range of future disposition activity because any potential future disposition transactions will ultimately depend on the market conditions and other factors, including but not limited to the Company’s capital needs, the particular assets being sold and the Company’s ability to defer some or all of the taxable gain on the sales. These guidance estimates also do not include the impact on operating results from potential future acquisitions, possible capital markets activity, possible future impairment charges or any events outside of the Company’s control. There can be no assurance that the Company’s actual results will not differ materially from these estimates.

4
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Common Stock Data (NYSE: KRC)
 
 
 
Three Months Ended
 
 
 
6/30/2019
 
3/31/2019
 
12/31/2018
 
9/30/2018
 
6/30/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Price
$
78.36

 
$
76.50

 
$
72.34

 
$
76.67

 
$
77.34

 
 
Low Price
$
72.87

 
$
61.44

 
$
59.46

 
$
69.67

 
$
68.96

 
 
Closing Price
$
73.81

 
$
75.96

 
$
62.88

 
$
71.69

 
$
75.64

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends per share – annualized (1)
$
1.94

 
$
1.82

 
$
1.82

 
$
1.82

 
$
1.82

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Closing common shares (in 000’s) (2) (3)
100,972

 
100,967

 
100,747

 
100,747

 
100,560

 
 
Closing common partnership units (in 000’s) (2)
2,023

 
2,023

 
2,025

 
2,025

 
2,071

 
 
 
102,995

 
102,990

 
102,772

 
102,772

 
102,631

 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
In May 2019, the regular quarterly cash dividend was increased to an annualized rate of $1.94 per share, a 6.6% increase from the previous annualized dividend level of $1.82 per share.
(2)
As of the end of the period.
(3)
On July 22, 2019, the Company fully and physically settled 5,000,000 shares of common stock in connection with the August 2018 forward transaction for net proceeds of approximately $354.3 million.






5
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Consolidated Balance Sheets
(unaudited, $ in thousands)
 
 
6/30/2019
 
3/31/2019
 
12/31/2018
 
9/30/2018
 
6/30/2018
 
 
ASSETS:

 
 
 
 
 
 
 
 
 
 
Land and improvements
$
1,284,582

 
$
1,184,496

 
$
1,160,138

 
$
1,127,100

 
$
1,127,100

 
 
Buildings and improvements
5,712,448

 
5,300,313

 
5,207,984

 
5,056,050

 
5,017,999

 
 
Undeveloped land and construction in progress
1,827,528

 
2,131,358

 
2,058,510

 
2,146,430

 
1,993,314

 
 
Total real estate assets held for investment
8,824,558

 
8,616,167

 
8,426,632

 
8,329,580

 
8,138,413

 
 
Accumulated depreciation and amortization
(1,480,766
)
 
(1,441,506
)
 
(1,391,368
)
 
(1,411,529
)
 
(1,361,811
)
 
 
Total real estate assets held for investment, net
7,343,792

 
7,174,661

 
7,035,264

 
6,918,051

 
6,776,602

 
 
Cash and cash equivalents
52,415

 
49,693

 
51,604

 
86,517

 
50,817

 
 
Restricted cash
6,300

 
6,300

 
119,430

 
—

 
—

 
 
Marketable securities
25,203

 
24,098

 
21,779

 
23,353

 
22,519

 
 
Current receivables, net
27,563

 
28,016

 
20,176

 
17,519

 
15,144

 
 
Deferred rent receivables, net
297,358

 
280,756

 
267,007

 
261,003

 
256,558

 
 
Deferred leasing costs and acquisition-related intangible assets, net
203,451

 
187,309

 
197,574

 
183,118

 
186,649

 
 
Right of use ground lease assets (1)
82,647

 
82,794

 
—

 
—

 
—

 
 
Prepaid expenses and other assets, net
55,992

 
50,360

 
52,873

 
72,675

 
76,495

 
 
TOTAL ASSETS
$
8,094,721

 
$
7,883,987

 
$
7,765,707

 
$
7,562,236

 
$
7,384,784

 
 
LIABILITIES AND EQUITY:
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Secured debt, net
$
259,455

 
$
259,878

 
$
335,531

 
$
336,866

 
$
338,189

 
 
Unsecured debt, net
2,553,651

 
2,552,883

 
2,552,070

 
2,207,049

 
2,156,521

 
 
Unsecured line of credit
375,000

 
185,000

 
45,000

 
330,000

 
295,000

 
 
Accounts payable, accrued expenses and other liabilities
385,567

 
373,691

 
374,415

 
360,674

 
278,508

 
 
Ground lease liabilities (1)
87,082

 
87,247

 
—

 
—

 
—

 
 
Accrued dividends and distributions
50,800

 
47,676

 
47,559

 
47,411

 
47,348

 
 
Deferred revenue and acquisition-related intangible liabilities, net
136,266

 
138,973

 
149,646

 
149,059

 
146,741

 
 
Rents received in advance and tenant security deposits
59,997

 
55,457

 
60,225

 
56,258

 
58,604

 
 
Total liabilities
3,907,818

 
3,700,805

 
3,564,446


3,487,317


3,320,911

 
 
Equity:
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
Common stock
1,010

 
1,010

 
1,007

 
1,007

 
1,006

 
 
Additional paid-in capital
3,984,867

 
3,976,204

 
3,976,953

 
3,965,405

 
3,951,289

 
 
Distributions in excess of earnings
(70,345
)
 
(62,690
)
 
(48,053
)
 
(161,654
)
 
(149,368
)
 
 
Total stockholders’ equity
3,915,532

 
3,914,524

 
3,929,907

 
3,804,758

 
3,802,927

 
 
Noncontrolling Interests
 
 
 
 
 
 
 
 
 
 
 
Common units of the Operating Partnership
78,463

 
78,413

 
78,991

 
76,486

 
78,223

 
 
Noncontrolling interests in consolidated property partnerships
192,908

 
190,245

 
192,363

 
193,675

 
182,723

 
 
Total noncontrolling interests
271,371

 
268,658

 
271,354

 
270,161

 
260,946

 
 
Total equity
4,186,903

 
4,183,182

 
4,201,261

 
4,074,919

 
4,063,873

 
 
TOTAL LIABILITIES AND EQUITY
$
8,094,721

 
$
7,883,987

 
$
7,765,707

 
$
7,562,236

 
$
7,384,784

 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Effective January 1, 2019, the Company adopted ASC 842 “Leases,” which requires right of use assets and liabilities for leases in which the Company is the lessee to be presented on the Company’s consolidated balance sheets.

6
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Consolidated Statements of Operations
(unaudited, $ and shares in thousands, except per share amounts)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
 
2019
 
2018
 
2019
 
2018
 
 
REVENUES
 
 
 
 
 
 
 
 
 
 
Rental income (1)
 
$
197,629

 
$
164,515

 
$
397,011

 
$
327,386

 
 
Tenant reimbursements (1)
 
—

 
19,567

 
—

 
38,717

 
 
Other property income (1)
 
2,863

 
2,990

 
4,683

 
3,791

 
 
Total revenues
 
200,492

 
187,072

 
401,694

 
369,894

 
 
EXPENSES
 
 
 
 
 
 
 
 
 
 
Property expenses (1)
 
38,536

 
32,567

 
76,685

 
64,238

 
 
Real estate taxes (1)
 
17,926

 
17,813

 
36,565

 
34,959

 
 
Provision for bad debts (1)
 
—

 
5,641

 
—

 
5,376

 
 
Ground leases (1)
 
2,114

 
1,586

 
4,086

 
3,147

 
 
General and administrative expenses
 
19,857

 
21,763

 
43,198

 
37,322

 
 
Leasing costs (1)
 
2,650

 
—

 
4,407

 
—

 
 
Depreciation and amortization
 
68,252

 
64,006

 
134,387

 
126,721

 
 
Total expenses
 
149,335

 
143,376

 
299,328

 
271,763

 
 
OTHER (EXPENSES) INCOME
 
 
 
 
 
 
 
 
 
 
Interest income and other net investment gain
 
616

 
771

 
2,444

 
805

 
 
Interest expense
 
(11,727
)
 
(12,712
)
 
(22,970
)
 
(26,210
)
 
 
Gains on sales of depreciable operating properties
 
7,169

 
—

 
7,169

 
—

 
 
Total other (expenses) income
 
(3,942
)
 
(11,941
)
 
(13,357
)
 
(25,405
)
 
 
NET INCOME
 
47,215

 
31,755

 
89,009

 
72,726

 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
(871
)
 
(566
)
 
(1,571
)
 
(1,317
)
 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
(4,150
)
 
(3,640
)
 
(8,341
)
 
(7,614
)
 
 
Total income attributable to noncontrolling interests
 
(5,021
)
 
(4,206
)
 
(9,912
)
 
(8,931
)
 
 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
 
$
42,194

 
$
27,549

 
$
79,097

 
$
63,795

 
 
Weighted average common shares outstanding – basic
 
100,972

 
99,692

 
100,937

 
99,221

 
 
Weighted average common shares outstanding – diluted
 
101,810

 
100,151

 
101,619

 
99,688

 
 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS PER SHARE
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders per share – basic
 
$
0.41

 
$
0.27

 
$
0.77

 
$
0.63

 
 
Net income available to common stockholders per share – diluted
 
$
0.41

 
$
0.27

 
$
0.77

 
$
0.63

 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Effective January 1, 2019, the Company adopted ASC 842 “Leases.” Please refer to page 10 for a description of the changes made to our 2019 consolidated statement of operations upon adoption of ASC 842 “Leases.” In accordance with the adoption of the new standard under the modified retrospective method, previously reported periods are not restated for the impact of the standard.

7
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Funds From Operations and Funds Available for Distribution
(unaudited, $ in thousands, except per share amounts)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
 
2019
 
2018
 
2019
 
2018
 
 
FUNDS FROM OPERATIONS: (1)
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
42,194

 
$
27,549

 
$
79,097

 
$
63,795

 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
871

 
566

 
1,571

 
1,317

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
4,150

 
3,640

 
8,341

 
7,614

 
 
Depreciation and amortization of real estate assets
 
67,011

 
62,956

 
131,982

 
124,633

 
 
Gains on sales of depreciable real estate
 
(7,169
)
 
—

 
(7,169
)
 
—

 
 
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships
 
(7,152
)
 
(6,082
)
 
(14,105
)
 
(12,445
)
 
 
Funds From Operations (1)(2)
 
$
99,905

 
$
88,629

 
$
199,717

 
$
184,914

 
 
Weighted average common shares/units outstanding – basic (3)
 
104,115

 
102,879

 
104,088

 
102,457

 
 
Weighted average common shares/units outstanding – diluted (4)
 
104,952

 
103,338

 
104,770

 
102,924

 
 
FFO per common share/unit – basic (1)
 
$
0.96

 
$
0.86

 
$
1.92

 
$
1.80

 
 
FFO per common share/unit – diluted (1)
 
$
0.95

 
$
0.86

 
$
1.91

 
$
1.80

 
 
FUNDS AVAILABLE FOR DISTRIBUTION: (1)
 
 
 
 
 
 
 
 
 
 
Funds From Operations (1)(2)
 
$
99,905

 
$
88,629

 
$
199,717

 
$
184,914

 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
Recurring tenant improvements, leasing commissions and capital expenditures
 
(33,433
)
 
(34,854
)
 
(55,016
)
 
(48,848
)
 
 
Amortization of deferred revenue related to tenant-funded tenant improvements (2)(5)
 
(4,364
)
 
(4,588
)
 
(8,181
)
 
(8,869
)
 
 
Net effect of straight-line rents
 
(16,947
)
 
(4,814
)
 
(33,458
)
 
(10,167
)
 
 
Amortization of net below market rents (6)
 
(2,321
)
 
(2,938
)
 
(4,415
)
 
(5,481
)
 
 
Amortization of deferred financing costs and net debt discount/premium
 
582

 
267

 
717

 
582

 
 
Non-cash executive compensation expense (7)
 
7,244

 
8,669

 
14,828

 
12,267

 
 
Other lease related adjustments, net and leasing costs (8)
 
(1,878
)
 
(733
)
 
(1,843
)
 
554

 
 
Adjustments attributable to noncontrolling interests in consolidated property partnerships
 
3,581

 
2,315

 
5,954

 
2,538

 
 
Funds Available for Distribution (1)
 
$
52,369

 
$
51,953

 
$
118,303

 
$
127,490

 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
See page 33 for Management Statements on Funds From Operations and Funds Available for Distribution. Reported per common share/unit amounts are attributable to common stockholders, common unitholders and restricted stock unit holders.
(2)
FFO available to common stockholders and unitholders includes amortization of deferred revenue related to tenant-funded tenant improvements of $4.4 million and $4.6 million for the three months ended June 30, 2019 and 2018, respectively, and $8.2 million and $8.9 million for the six months ended June 30, 2019 and 2018, respectively. These amounts are adjusted out of FFO in our calculation of FAD.
(3)
Calculated based on weighted average shares outstanding including participating share-based awards and assuming the exchange of all common limited partnership units outstanding.
(4)
Calculated based on weighted average shares outstanding including participating and non-participating share-based awards, dilutive impact of stock options, contingently issuable shares, and shares issuable under forward equity sale agreements and assuming the exchange of all common limited partnership units outstanding.
(5)
Represents revenue recognized during the period as a result of the amortization of deferred revenue recorded for tenant-funded tenant improvements.
(6)
Represents the non-cash adjustment related to the acquisition of buildings with above and/or below market rents.
(7)
Includes non-cash amortization of share-based compensation and accrued potential future executive retirement benefits.
(8)
Includes other cash and non-cash adjustments attributable to lease-related matters including GAAP revenue recognition timing differences and leasing costs.


8
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Reconciliation of GAAP Net Cash Provided by Operating Activities to Funds Available for Distribution
(unaudited, $ in thousands)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
 
2019
 
2018
 
2019
 
2018
 
 
GAAP Net Cash Provided by Operating Activities 
 
$
65,870

 
$
94,734

 
$
165,660

 
$
188,843

 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
Recurring tenant improvements, leasing commissions and capital expenditures
 
(33,433
)
 
(34,854
)
 
(55,016
)
 
(48,848
)
 
 
Depreciation of non-real estate furniture, fixtures and equipment
 
(1,241
)
 
(1,050
)
 
(2,405
)
 
(2,088
)
 
 
Net changes in operating assets and liabilities (1)
 
24,965

 
(890
)
 
19,003

 
5,487

 
 
Noncontrolling interests in consolidated property partnerships’ share of FFO and FAD
 
(3,571
)
 
(3,767
)
 
(8,151
)
 
(9,907
)
 
 
Cash adjustments related to investing and financing activities
 
(221
)
 
(2,220
)
 
(788
)
 
(5,997
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Funds Available for Distribution(2)
 
$
52,369

 
$
51,953

 
$
118,303

 
$
127,490

 
 
 
 
 
 
 
 
 
 
 
 
_______________________
(1)
Primarily includes changes in the following assets and liabilities: marketable securities; current receivables; prepaid expenses and other assets; accounts payable, accrued expenses and other liabilities; and rents received in advance and tenant security deposits. 
(2)
Please refer to page 33 for a Management Statement on Funds Available for Distribution.


9
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Net Operating Income (1) 
(unaudited, $ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
 
2019 (2)
 
2018 As Reported
 
2018 As Adjusted (3)
 
% Change
2019 vs. 2018
As Adjusted
 
2019 (2)
 
2018 As Reported
 
2018 As Adjusted (3)
 
% Change
2019 vs. 2018
As Adjusted
 
 
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
173,065

 
$
164,515

 
$
158,981

 
8.9
 %
 
$
344,947

 
$
327,386

 
$
320,926

 
7.5
 %
 
 
Tenant reimbursements
 
24,564

 
19,567

 
23,362

 
5.1
 %
 
52,064

 
38,717

 
46,037

 
13.1
 %
 
 
Other property income
 
2,863

 
2,990

 
2,883

 
(0.7
)%
 
4,683

 
3,791

 
4,875

 
(3.9
)%
 
 
Total operating revenues
 
200,492

 
187,072

 
185,226

 
8.2
 %
 
401,694

 
369,894

 
371,838

 
8.0
 %
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Property expenses
 
38,536

 
32,567

 
36,362

 
6.0
 %
 
76,685

 
64,238

 
71,558

 
7.2
 %
 
 
Real estate taxes
 
17,926

 
17,813

 
17,352

 
3.3
 %
 
36,565

 
34,959

 
34,036

 
7.4
 %
 
 
Provision for bad debts
 
—

 
5,641

 
—

 
—
 %
 
—

 
5,376

 
—

 
—
 %
 
 
Ground leases
 
2,114

 
1,586

 
2,047

 
3.3
 %
 
4,086

 
3,147

 
4,070

 
0.4
 %
 
 
Total operating expenses
 
58,576

 
57,607

 
55,761

 
5.0
 %
 
117,336

 
107,720

 
109,664

 
7.0
 %
 
 
Net Operating Income
 
$
141,916

 
$
129,465

 
$
129,465

 
9.6
 %
 
$
284,358

 
$
262,174

 
$
262,174

 
8.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Please refer to page 31 for Management Statements on Net Operating Income and page 36 for a reconciliation of GAAP Net Income Available to Common Stockholders to Net Operating Income.
(2)
Effective January 1, 2019, the Company adopted ASC 842 “Leases,” which required the following changes for all periods beginning and subsequent to January 1, 2019. In accordance with the adoption of the new standard under the modified retrospective method, previously reported periods are not restated for the impact of the standard.
- All lease related revenue required to be reported as a single component within rental income. For the three months ended June 30, 2019, rental income includes $24.5 million of tenant reimbursements and $3.6 million of lease termination fees. For the six months ended June 30, 2019, rental income includes $52.0 million of tenant reimbursements and $6.9 million of lease termination fees. For this analysis, tenant reimbursements have been broken out from rental income for comparison purposes.
- Rental income to be presented net of provision for bad debts. For the three and six months ended June 30, 2019, rental income includes provision for bad debts of $0.2 million and a recovery of provision for bad debts of $3.3 million, respectively.
- All property expenses paid directly by the Company and reimbursed by the tenant to be presented on a gross basis. For the three and six months ended June 30, 2019, rental income and property expenses both include $3.1 million and $6.1 million, respectively, of additional tenant reimbursements and the related property expenses, which were previously shown net in property expenses in prior periods. This change has no impact to net income, Net Operating Income or Funds From Operations.
- Non-tenant parking income to be presented in other property income instead of rental income since recognized under ASC 606 “Revenue from Contracts with Customers” and outside the scope of ASC 842 “Leases.”
- Real estate taxes for properties where the Company is a lessee under ground leases to be presented in ground leases instead of real estate taxes. For the three and six months ended June 30, 2019, ground leases includes $0.5 million and $0.9 million, respectively, of property taxes for properties where the Company is a lessee.
(3)
The components of Net Operating Income for the three and six months ended June 30, 2018 have been presented as if we adopted ASC 842 “Leases” effective January 1, 2018 for comparison purposes. For this analysis, tenant reimbursements have been broken out from rental income for comparison purposes. For the three and six months ended June 30, 2018 as adjusted, rental income includes $2.1 million and $2.5 million, respectively, of lease termination fees.


10
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Same Store Analysis (1) 
(unaudited, $ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
 
2019
 
2018
 
2018 As Adjusted (2)
 
% Change
2019 vs. 2018
As Adjusted
 
2019
 
2018
 
2018 As Adjusted (2)
 
% Change
2019 vs. 2018
As Adjusted
 
 
Total Same Store Portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of properties
 
89

 
89

 
89

 
 
 
89

 
89

 
89

 
 
 
 
Square Feet
 
12,896,695

 
12,896,695

 
12,896,695

 
 
 
12,896,695

 
12,896,695

 
12,896,695

 
 
 
 
Percent of Stabilized Portfolio
 
95.3
%
 
92.9
%
 
92.9
%
 
 
 
95.3
%
 
92.9
%
 
92.9
%
 
 
 
 
Average Occupancy
 
93.7
%
 
94.7
%
 
94.7
%
 
 
 
93.5
%
 
94.8
%
 
94.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues: (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income 
 
$
158,518

 
$
156,202

 
$
150,858

 
5.1
 %
 
$
318,509

 
$
311,498

 
$
305,222

 
4.4
 %
 
 
Tenant reimbursements
 
22,144

 
17,670

 
21,359

 
3.7
 %
 
46,130

 
35,250

 
42,340

 
9.0
 %
 
 
Other property income
 
2,610

 
2,921

 
2,878

 
(9.3
)%
 
4,361

 
3,688

 
4,867

 
(10.4
)%
 
 
Total operating revenues
 
183,272

 
176,793

 
175,095

 
4.7
 %
 
369,000

 
350,436

 
352,429

 
4.7
 %
 
 
Operating Expenses: (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property expenses
 
36,005

 
30,683

 
34,372

 
4.8
 %
 
72,358

 
60,647

 
67,737

 
6.8
 %
 
 
Real estate taxes
 
16,607

 
16,395

 
15,934

 
4.2
 %
 
33,196

 
32,344

 
31,421

 
5.6
 %
 
 
Provision for bad debts
 
—

 
5,388

 
—

 
—
 %
 
—

 
5,097

 
—

 
—
 %
 
 
Ground leases
 
2,114

 
1,586

 
2,048

 
3.2
 %
 
4,086

 
3,147

 
4,070

 
0.4
 %
 
 
Total operating expenses
 
54,726

 
54,052

 
52,354

 
4.5
 %
 
109,640

 
101,235

 
103,228

 
6.2
 %
 
 
GAAP Net Operating Income
 
$
128,546

 
$
122,741

 
$
122,741

 
4.7
 %
 
$
259,360

 
$
249,201

 
$
249,201

 
4.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Store Analysis (Cash Basis) (4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
 
2019
 
2018
 
2018 As Adjusted (2)
 
% Change
2019 vs. 2018
As Adjusted
 
2019
 
2018
 
2018 As Adjusted (2)
 
% Change
2019 vs. 2018
As Adjusted
 
 
Total operating revenues
 
$
164,552

 
$
164,974

 
$
168,662

 
(2.4
)%
 
$
330,324

 
$
328,064

 
$
335,154

 
(1.4
)%
 
 
Total operating expenses
 
54,755

 
48,665

 
52,353

 
4.6
 %
 
109,674

 
96,137

 
103,227

 
6.2
 %
 
 
Cash Net Operating Income
 
$
109,797

 
$
116,309

 
$
116,309

 
(5.6
)%
 
$
220,650

 
$
231,927

 
$
231,927

 
(4.9
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Same Store is defined as all properties owned and included in our stabilized portfolio as of January 1, 2018 and still owned and included in the stabilized portfolio as of June 30, 2019. Same Store includes 100% of consolidated property partnerships as well as the residential tower at Columbia Square.
(2)
The components of Net Operating Income for the three and six months ended June 30, 2018 have been presented as if we adopted ASC 842 “Leases” effective January 1, 2018 for comparison purposes.
(3)
Please refer to page 10 for our Net Operating Income and a description of the changes made and their impact on our consolidated statements of operations effective January 1, 2019 upon adoption of ASC 842 “Leases.” For this analysis, tenant reimbursements have been broken out from rental income. For the three and six months ended June 30, 2019, rental income includes lease termination fees of $1.7 million and $3.2 million, respectively. For the three and six months ended June 30, 2018 as adjusted, rental income includes lease termination fees of $1.9 million and $2.4 million, respectively. For our same store portfolio, the gross-up presentation of property expenses paid directly by the Company and reimbursed by the tenant increased tenant reimbursements and property expenses by $2.7 million and $5.5 million for the three and six months ended June 30, 2019, respectively. The impact of all other changes from the adoption of ASC 842 was the same for our consolidated portfolio and our same store portfolio.
(4)
Please refer to page 36 for a reconciliation of GAAP Net Income Available to Common Stockholders to Same Store GAAP Net Operating Income and Same Store Cash Net Operating Income.

11
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Stabilized Portfolio Occupancy Overview by Region

 
 
 
 
 
Portfolio Breakdown
 
 
 
Occupied at
 
Leased at
 
 
STABILIZED OFFICE PORTFOLIO
 
Buildings
 
YTD NOI %
 
SF %
 
Total SF
 
6/30/2019
 
3/31/2019 (1)
 
6/30/2019
 
 
Greater Los Angeles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
El Segundo
 
5
 
4.9
%
 
8.1
%
 
1,093,050

 
98.0
%
 
98.3
%
 
98.0
%
 
 
Hollywood
 
6
 
7.4
%
 
6.0
%
 
806,557

 
97.5
%
 
99.2
%
 
98.7
%
 
 
Long Beach
 
7
 
3.1
%
 
7.0
%
 
949,942

 
93.1
%
 
93.0
%
 
93.3
%
 
 
West Hollywood
 
4
 
1.5
%
 
1.3
%
 
178,699

 
92.2
%
 
95.1
%
 
98.7
%
 
 
West Los Angeles
 
10
 
6.3
%
 
6.2
%
 
844,151

 
90.6
%
 
93.3
%
 
93.3
%
 
 
Total Greater Los Angeles
 
32
 
23.2
%
 
28.6
%
 
3,872,399

 
94.8
%
 
95.6
%
 
96.0
%
 
 
Total Orange County
 
1
 
1.2
%
 
2.0
%
 
271,556

 
66.4
%
 
90.3
%
 
92.5
%
 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Del Mar
 
14
 
8.0
%
 
10.0
%
 
1,349,747

 
93.4
%
 
92.7
%
 
96.7
%
 
 
I-15 Corridor
 
5
 
1.3
%
 
4.0
%
 
540,892

 
80.2
%
 
81.8
%
 
80.8
%
 
 
Point Loma
 
1
 
0.4
%
 
0.8
%
 
107,456

 
100.0
%
 
100.0
%
 
100.0
%
 
 
University Towne Center
 
1

 
0.2
%
 
0.4
%
 
47,846

 
91.4
%
 
91.4
%
 
91.4
%
 
 
Total San Diego County
 
21
 
9.9
%
 
15.2
%
 
2,045,941

 
90.2
%
 
90.2
%
 
92.6
%
 
 
San Francisco Bay Area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Menlo Park
 
7
 
3.3
%
 
2.8
%
 
378,358

 
100.0
%
 
99.1
%
 
100.0
%
 
 
Mountain View
 
4
 
4.9
%
 
4.0
%
 
542,235

 
100.0
%
 
100.0
%
 
100.0
%
 
 
Palo Alto
 
2
 
1.8
%
 
1.2
%
 
165,585

 
100.0
%
 
100.0
%
 
100.0
%
 
 
Redwood City
 
2
 
4.0
%
 
2.6
%
 
347,269

 
100.0
%
 
99.1
%
 
100.0
%
 
 
San Francisco
 
10
 
32.7
%
 
24.4
%
 
3,312,492

 
90.8
%
 
88.0
%
 
99.3
%
 
 
South San Francisco
 
3
 
1.2
%
 
1.1
%
 
145,530

 
100.0
%
 
78.5
%
 
100.0
%
 
 
Sunnyvale
 
4
 
5.5
%
 
4.8
%
 
663,460

 
100.0
%
 
100.0
%
 
100.0
%
 
 
Total San Francisco Bay Area
 
32
 
53.4
%
 
40.9
%
 
5,554,929

 
94.5
%
 
92.5
%
 
99.6
%
 
 
Greater Seattle
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bellevue
 
2
 
5.9
%
 
6.8
%
 
917,027

 
97.4
%
 
93.8
%
 
97.9
%
 
 
Lake Union
 
6
 
6.4
%
 
6.5
%
 
884,763

 
97.8
%
 
83.7
%
 
98.9
%
 
 
Total Greater Seattle
 
8
 
12.3
%
 
13.3
%
 
1,801,790

 
97.6
%
 
88.8
%
 
98.4
%
 
 
TOTAL STABILIZED OFFICE PORTFOLIO
 
94
 
100.0
%
 
100.0
%
 
13,546,615

 
93.8
%
 
92.5
%
 
97.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total No. of Units
 
Average Residential Occupancy
 
 
 
 
RESIDENTIAL PROPERTY
 
 
 
Submarket
 
Buildings
 
 
Quarter-to-Date
 
Year-to-Date
 
 
 
 
Greater Los Angeles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1550 N. El Centro Avenue
 
 
 
Hollywood
 
1

 
200

 
76.5%
 
73.4%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Office Occupancy
Quarter-to-Date
 
Year-to-Date
93.5%
 
93.3%
________________________
(1)
Represents occupancy for properties in the stabilized portfolio as of the date presented, including properties sold subsequent to the date presented.

12
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Stabilized Office Portfolio Occupancy Overview by Region, continued
 
 
 
Submarket
 
Square Feet
 
Occupied
 
Greater Los Angeles, California
 
 
 
 
 
 
 
 
2240 E. Imperial Highway
 
El Segundo
 
122,870

 
100.0
%
 
 
2250 E. Imperial Highway
 
El Segundo
 
298,728

 
100.0
%
 
 
2260 E. Imperial Highway
 
El Segundo
 
298,728

 
100.0
%
 
 
909 N. Pacific Coast Highway
 
El Segundo
 
244,136

 
92.8
%
 
 
999 N. Pacific Coast Highway
 
El Segundo
 
128,588

 
96.5
%
 
 
1500 N. El Centro Avenue
 
Hollywood
 
104,504

 
100.0
%
 
 
1525 N. Gower Street
 
Hollywood
 
9,610

 
100.0
%
 
 
1575 N. Gower Street
 
Hollywood
 
251,245

 
100.0
%
 
 
6115 W. Sunset Boulevard
 
Hollywood
 
26,105

 
100.0
%
 
 
6121 W. Sunset Boulevard
 
Hollywood
 
91,173

 
100.0
%
 
 
6255 W. Sunset Boulevard
 
Hollywood
 
323,920

 
93.7
%
 
 
3750 Kilroy Airport Way
 
Long Beach
 
10,457

 
100.0
%
 
 
3760 Kilroy Airport Way
 
Long Beach
 
165,278

 
92.5
%
 
 
3780 Kilroy Airport Way
 
Long Beach
 
219,777

 
80.7
%
 
 
3800 Kilroy Airport Way
 
Long Beach
 
192,476

 
100.0
%
 
 
3840 Kilroy Airport Way
 
Long Beach
 
136,026

 
100.0
%
 
 
3880 Kilroy Airport Way
 
Long Beach
 
96,035

 
100.0
%
 
 
3900 Kilroy Airport Way
 
Long Beach
 
129,893

 
91.4
%
 
 
8560 W. Sunset Boulevard
 
West Hollywood
 
71,875

 
100.0
%
 
 
8570 W. Sunset Boulevard
 
West Hollywood
 
43,603

 
85.1
%
 
 
8580 W. Sunset Boulevard
 
West Hollywood
 
7,126

 
100.0
%
 
 
8590 W. Sunset Boulevard
 
West Hollywood
 
56,095

 
86.8
%
 
 
12100 W. Olympic Boulevard
 
West Los Angeles
 
152,048

 
87.8
%
 
 
12200 W. Olympic Boulevard
 
West Los Angeles
 
150,832

 
89.5
%
 
 
12233 W. Olympic Boulevard
 
West Los Angeles
 
151,029

 
98.4
%
 
 
12312 W. Olympic Boulevard
 
West Los Angeles
 
76,644

 
100.0
%
 
 
1633 26th Street
 
West Los Angeles
 
43,857

 
34.9
%
 
 
2100/2110 Colorado Avenue
 
West Los Angeles
 
102,864

 
100.0
%
 
 
3130 Wilshire Boulevard
 
West Los Angeles
 
90,074

 
100.0
%
 
 
501 Santa Monica Boulevard
 
West Los Angeles
 
76,803

 
82.2
%
 
 
Total Greater Los Angeles
 
 
 
3,872,399

 
94.8
%
 
 
 
 
 
 
 
 
 
 

13
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Stabilized Office Portfolio Occupancy Overview by Region, continued
 
 
 
Submarket
 
Square Feet
 
Occupied
 
Orange County, California
 
 
 
 
 
 
 
 
2211 Michelson Drive
 
Irvine
 
271,556

 
66.4
%
 
 
Total Orange County
 
 
 
271,556

 
66.4
%
 
 
 
 
 
 
 
 
 
 
San Diego, California
 
 
 
 
 
 
 
 
12225 El Camino Real
 
Del Mar
 
58,401

 
100.0
%
 
 
12235 El Camino Real
 
Del Mar
 
53,751

 
88.9
%
 
 
12340 El Camino Real
 
Del Mar
 
89,272

 
50.1
%
 
 
12390 El Camino Real
 
Del Mar
 
70,140

 
44.9
%
 
 
12348 High Bluff Drive
 
Del Mar
 
38,806

 
100.0
%
 
 
12770 El Camino Real
 
Del Mar
 
73,032

 
100.0
%
 
 
12780 El Camino Real
 
Del Mar
 
140,591

 
100.0
%
 
 
12790 El Camino Real
 
Del Mar
 
78,836

 
100.0
%
 
 
12400 High Bluff Drive
 
Del Mar
 
209,220

 
100.0
%
 
 
3579 Valley Centre Drive
 
Del Mar
 
52,418

 
100.0
%
 
 
3611 Valley Centre Drive
 
Del Mar
 
129,656

 
100.0
%
 
 
3661 Valley Centre Drive
 
Del Mar
 
128,364

 
100.0
%
 
 
3721 Valley Centre Drive
 
Del Mar
 
115,193

 
100.0
%
 
 
3811 Valley Centre Drive
 
Del Mar
 
112,067

 
100.0
%
 
 
13280 Evening Creek Drive South
 
I-15 Corridor
 
41,196

 
100.0
%
 
 
13290 Evening Creek Drive South
 
I-15 Corridor
 
61,180

 
100.0
%
 
 
13480 Evening Creek Drive North
 
I-15 Corridor
 
154,157

 
100.0
%
 
 
13500 Evening Creek Drive North
 
I-15 Corridor
 
137,658

 
41.3
%
 
 
13520 Evening Creek Drive North
 
I-15 Corridor
 
146,701

 
82.1
%
 
 
2305 Historic Decatur Road
 
Point Loma
 
107,456

 
100.0
%
 
 
4690 Executive Drive
 
University Towne Center
 
47,846

 
91.4
%
 
 
Total San Diego County
 
 
 
2,045,941

 
90.2
%
 
 
 
 
 
 
 
 
 
 












14
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Stabilized Office Portfolio Occupancy Overview by Region, continued
 
 
 
Submarket
 
Square Feet
 
Occupied
 
San Francisco Bay Area, California
 
 
 
 
 
 
 
 
4100 Bohannon Drive
 
Menlo Park
 
47,379

 
100.0
%
 
 
4200 Bohannon Drive
 
Menlo Park
 
45,451

 
100.0
%
 
 
4300 Bohannon Drive
 
Menlo Park
 
63,079

 
100.0
%
 
 
4400 Bohannon Drive
 
Menlo Park
 
48,146

 
100.0
%
 
 
4500 Bohannon Drive
 
Menlo Park
 
63,078

 
100.0
%
 
 
4600 Bohannon Drive
 
Menlo Park
 
48,147

 
100.0
%
 
 
4700 Bohannon Drive
 
Menlo Park
 
63,078

 
100.0
%
 
 
1290-1300 Terra Bella Avenue
 
Mountain View
 
114,175

 
100.0
%
 
 
331 Fairchild Drive
 
Mountain View
 
87,147

 
100.0
%
 
 
680 E. Middlefield Road
 
Mountain View
 
170,090

 
100.0
%
 
 
690 E. Middlefield Road
 
Mountain View
 
170,823

 
100.0
%
 
 
1701 Page Mill Road
 
Palo Alto
 
128,688

 
100.0
%
 
 
3150 Porter Drive
 
Palo Alto
 
36,897

 
100.0
%
 
 
900 Jefferson Avenue
 
Redwood City
 
228,505

 
100.0
%
 
 
900 Middlefield Road
 
Redwood City
 
118,764

 
100.0
%
 
 
100 Hooper Street
 
San Francisco
 
394,340

 
83.2
%
 
 
100 First Street
 
San Francisco
 
467,095

 
97.5
%
 
 
303 Second Street
 
San Francisco
 
740,047

 
73.5
%
 
 
201 Third Street
 
San Francisco
 
346,538

 
99.2
%
 
 
360 Third Street
 
San Francisco
 
429,796

 
100.0
%
 
 
250 Brannan Street
 
San Francisco
 
100,850

 
100.0
%
 
 
301 Brannan Street
 
San Francisco
 
82,834

 
66.9
%
 
 
333 Brannan Street
 
San Francisco
 
185,602

 
100.0
%
 
 
345 Brannan Street
 
San Francisco
 
110,050

 
99.7
%
 
 
350 Mission Street
 
San Francisco
 
455,340

 
99.7
%
 
 
345 Oyster Point Boulevard
 
South San Francisco
 
40,410

 
100.0
%
 
 
347 Oyster Point Boulevard
 
South San Francisco
 
39,780

 
100.0
%
 
 
349 Oyster Point Boulevard
 
South San Francisco
 
65,340

 
100.0
%
 
 
505 Mathilda Avenue
 
Sunnyvale
 
212,322

 
100.0
%
 
 
555 Mathilda Avenue
 
Sunnyvale
 
212,322

 
100.0
%
 
 
605 Mathilda Avenue
 
Sunnyvale
 
162,785

 
100.0
%
 
 
599 Mathilda Avenue
 
Sunnyvale
 
76,031

 
100.0
%
 
 
Total San Francisco Bay Area
 
 
 
5,554,929

 
94.5
%
 
 
 
 
 
 
 
 
 
 

15
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Stabilized Office Portfolio Occupancy Overview by Region, continued
 
 
 
Submarket
 
Square Feet
 
Occupied
 
Greater Seattle, Washington
 
 
 
 
 
 
 
 
601 108th Avenue NE
 
Bellevue
 
488,470

 
96.6
%
 
 
10900 NE 4th Street
 
Bellevue
 
428,557

 
98.4
%
 
 
837 N. 34th Street
 
Lake Union
 
112,487

 
83.0
%
 
 
701 N. 34th Street
 
Lake Union
 
141,860

 
100.0
%
 
 
801 N. 34th Street
 
Lake Union
 
169,412

 
100.0
%
 
 
320 Westlake Avenue North
 
Lake Union
 
184,644

 
100.0
%
 
 
321 Terry Avenue North
 
Lake Union
 
135,755

 
100.0
%
 
 
401 Terry Avenue North
 
Lake Union
 
140,605

 
100.0
%
 
 
Total Greater Seattle
 
 
 
1,801,790

 
97.6
%
 
 
 
 
 
 
 
 
 
 
 
TOTAL
 
 
 
13,546,615

 
93.8
%
 
 
 
 
 
 
 
 
 
 


16
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Information on Leases Commenced (1) 
 
 
 
1st & 2nd Generation
 
2nd Generation
 
 
 
# of Leases  (2)
 
Square Feet (2)
 
Retention
Rates
 
TI/LC
Per Sq.Ft. (3)
 
TI/LC
Per Sq.Ft. /Year (3)
 
Changes in
GAAP Rents
 
Changes in
Cash Rents
 
Weighted
Average Lease
Term (Mo.)
 
 
 
New
 
Renewal
 
New
 
Renewal
 
 
 
 
 
 
 
 
Quarter to Date
23

 
14

 
439,146

 
411,856

 
58.8
%
 
$
59.52

 
$
7.29

 
45.2
%
 
19.1
%
 
98

 
 
Year to Date
35

 
30

 
661,759

 
570,478

 
41.1
%
 
50.62

 
6.83

 
41.0
%
 
17.1
%
 
89

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Information on Leases Executed (1) 
 
 
 
1st & 2nd Generation
 
2nd Generation
 
 
 
# of Leases (4)
 
Square Feet (4)
 
TI/LC
Per Sq.Ft. (3)
 
TI/LC
Per Sq.Ft. /Year (3)
 
Changes in
GAAP Rents
 
Changes in
Cash Rents
 
Weighted
Average Lease
Term (Mo.)
 
 
 
New
 
Renewal
 
New
 
Renewal
 
 
 
 
 
 
 
Quarter to Date (5)
29

 
14

 
486,062

 
411,856

 
$
67.43

 
$
8.89

 
68.7
%
 
41.3
%
 
91

 
 
Year to Date (6)
39

 
30

 
530,811

 
570,478

 
59.98

 
8.37

 
65.4
%
 
40.0
%
 
86
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Includes 100% of consolidated property partnerships.
(2)
Represents leasing activity for leases that commenced at properties in the stabilized portfolio during the three and six months ended June 30, 2019, including first and second generation space, net of month-to-month leases.
(3)
Includes tenant improvement costs and third-party leasing commissions. Amounts exclude tenant-funded tenant improvements and indirect leasing costs required to be expensed under ASC 842 “Leases” effective January 1, 2019.
(4)
Represents leasing activity for leases signed at properties in the stabilized portfolio during the three and six months ended June 30, 2019, including first and second generation space, net of month-to-month leases. Excludes leasing on new construction.
(5)
During the three months ended June 30, 2019, 23 new leases totaling 412,912 square feet were signed but not commenced as of June 30, 2019.
(6)
During the six months ended June 30, 2019, 28 new leases totaling 428,373 square feet were signed but not commenced as of June 30, 2019.

 

17
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Stabilized Portfolio Capital Expenditures
($ in thousands)
 
 
Total 2019
 
Q2 2019
 
Q1 2019
 
 
1st Generation (Nonrecurring) Capital Expenditures: (1)
 
 
 
 
 
 
 
Capital Improvements
$
6,814

 
$
5,047

 
$
1,767

 
 
 
 
 
 
 
 
 
 
Tenant Improvements & Leasing Commissions (2)
5,300

 
1,303

 
3,997

 
 
 
 
 
 
 
 
 
 
Total
$
12,114


$
6,350

 
$
5,764

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total 2019
 
Q2 2019
 
Q1 2019
 
 
2nd Generation (Recurring) Capital Expenditures: (1)
 
 
 
 
 
 
 
Capital Improvements
$
6,449

 
$
2,447

 
$
4,002

 
 
 
 
 
 
 
 
 
 
Tenant Improvements & Leasing Commissions (2)
48,567

 
30,986

 
17,581

 
 
 
 
 
 
 
 
 
 
Total
$
55,016

 
$
33,433

 
$
21,583

 
 
 
 
 
 
 
 
 
________________________
(1)
Includes 100% of capital expenditures of consolidated property partnerships.
(2)
Includes tenant improvement costs and third-party leasing commissions. Amounts exclude tenant-funded tenant improvements.


18
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Stabilized Portfolio Lease Expiration Summary Schedule
($ in thousands, except for annualized rent per sq. ft.)
 
Year of Expiration
 
# of Expiring
Leases
 
Total Square
Feet
 
% of Total
Leased Sq. Ft.
 
Annualized
Base Rent (1)
 
% of Total
Annualized
Base Rent
 
Annualized Rent
per Sq. Ft.
 
 
Remaining 2019 (2)
 
38

 
664,585

 
5.3
%
 
$
37,442

 
6.1
%
 
$
56.34

 
 
2020 (2)
 
87

 
1,087,589

 
8.7
%
 
47,563

 
7.7
%
 
43.73

 
 
2021
 
83

 
864,357

 
7.0
%
 
37,107

 
6.0
%
 
42.93

 
 
2022
 
53

 
671,664

 
5.5
%
 
30,082

 
4.9
%
 
44.79

 
 
2023
 
69

 
1,180,599

 
9.4
%
 
63,722

 
10.3
%
 
53.97

 
 
2024
 
56

 
1,010,352

 
8.1
%
 
47,647

 
7.7
%
 
47.16

 
 
2025
 
32

 
547,370

 
4.4
%
 
26,918

 
4.4
%
 
49.18

 
 
2026
 
27

 
1,470,610

 
11.8
%
 
65,133

 
10.6
%
 
44.29

 
 
2027
 
23

 
1,217,266

 
9.8
%
 
50,409

 
8.2
%
 
41.41

 
 
2028
 
19

 
914,973

 
7.3
%
 
56,298

 
9.1
%
 
61.53

 
 
2029 and beyond
 
34

 
2,833,166

 
22.7
%
 
153,695

 
25.0
%
 
54.25

 
 
Total (3)
 
521

 
12,462,531

 
100.0
%
 
$
616,016

 
100.0
%
 
$
49.43

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Includes 100% of annualized base rent of consolidated property partnerships.
(2)
Adjusting for leasing transactions executed as of June 30, 2019 but not yet commenced, the 2019 and 2020 expirations would be reduced by 486,434 and 155,408 square feet, respectively.
(3)
For leases that have been renewed early with existing tenants, the expiration date and annualized base rent information presented takes into consideration the renewed lease terms. Excludes leases not commenced as of June 30, 2019, space leased under month-to-month leases, storage leases, vacant space and future lease renewal options not executed as of June 30, 2019.

19
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Stabilized Portfolio Lease Expiration Schedule by Region
($ in thousands, except for annualized rent per sq. ft.)
 
Year
 
Region
 
# of
Expiring Leases
 
Total
Square Feet
 
% of Total
Leased Sq. Ft.
 
Annualized
Base Rent (1)
 
% of Total
Annualized
Base Rent
 
Annualized Rent
per Sq. Ft.
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019
 
Greater Los Angeles
 
15

 
42,765

 
0.3
%
 
$
2,220

 
0.4
%
 
$
51.91

 
 
 
Orange County
 
1

 
4,636

 
0.1
%
 
133

 
—
%
 
28.69

 
 
 
San Diego
 
6

 
40,154

 
0.3
%
 
1,580

 
0.3
%
 
39.35

 
 
 
San Francisco Bay Area
 
12

 
564,784

 
4.5
%
 
33,102

 
5.3
%
 
58.61

 
 
 
Greater Seattle
 
4

 
12,246

 
0.1
%
 
407

 
0.1
%
 
33.24

 
 
 
Total
 
38

 
664,585

 
5.3
%
 
$
37,442

 
6.1
%
 
$
56.34

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2020
 
Greater Los Angeles
 
50

 
459,422

 
3.7
%
 
$
19,654

 
3.2
%
 
$
42.78

 
 
 
Orange County
 
5

 
38,526

 
0.3
%
 
1,238

 
0.2
%
 
32.13

 
 
 
San Diego
 
15

 
260,552

 
2.1
%
 
10,448

 
1.7
%
 
40.10

 
 
 
San Francisco Bay Area
 
13

 
240,366

 
1.9
%
 
13,662

 
2.2
%
 
56.84

 
 
 
Greater Seattle
 
4

 
88,723

 
0.7
%
 
2,561

 
0.4
%
 
28.87

 
 
 
Total
 
87

 
1,087,589

 
8.7
%
 
$
47,563

 
7.7
%
 
$
43.73

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2021
 
Greater Los Angeles
 
46

 
295,663

 
2.4
%
 
$
12,150

 
2.0
%
 
$
41.09

 
 
 
Orange County
 
5

 
72,299

 
0.6
%
 
2,556

 
0.4
%
 
35.35

 
 
 
San Diego
 
13

 
235,674

 
1.9
%
 
9,255

 
1.5
%
 
39.27

 
 
 
San Francisco Bay Area
 
11

 
232,409

 
1.9
%
 
12,245

 
2.0
%
 
52.69

 
 
 
Greater Seattle
 
8

 
28,312

 
0.2
%
 
901

 
0.1
%
 
31.82

 
 
 
Total
 
83

 
864,357

 
7.0
%
 
$
37,107

 
6.0
%
 
$
42.93

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2022
 
Greater Los Angeles
 
32

 
281,213

 
2.3
%
 
$
13,918

 
2.3
%
 
$
49.49

 
 
 
Orange County
 
2

 
6,898

 
0.1
%
 
269

 
—
%
 
39.00

 
 
 
San Diego
 
7

 
198,982

 
1.6
%
 
6,821

 
1.1
%
 
34.28

 
 
 
San Francisco Bay Area
 
6

 
115,111

 
0.9
%
 
6,551

 
1.1
%
 
56.91

 
 
 
Greater Seattle
 
6

 
69,460

 
0.6
%
 
2,523

 
0.4
%
 
36.32

 
 
 
Total
 
53

 
671,664

 
5.5
%
 
$
30,082

 
4.9
%
 
$
44.79

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2023
 
Greater Los Angeles
 
29

 
309,859

 
2.5
%
 
$
17,024

 
2.7
%
 
$
54.94

 
 
 
Orange County
 
3

 
17,738

 
0.1
%
 
709

 
0.1
%
 
39.97

 
 
 
San Diego
 
11

 
191,444

 
1.5
%
 
8,002

 
1.3
%
 
41.80

 
 
 
San Francisco Bay Area
 
20

 
570,640

 
4.6
%
 
34,870

 
5.7
%
 
61.11

 
 
 
Greater Seattle
 
6

 
90,918

 
0.7
%
 
3,117

 
0.5
%
 
34.28

 
 
 
Total
 
69

 
1,180,599

 
9.4
%
 
$
63,722

 
10.3
%
 
$
53.97

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2024
and
Beyond
 
Greater Los Angeles
 
63

 
2,123,845

 
17.1
%
 
$
92,210

 
15.0
%
 
$
43.42

 
 
 
Orange County
 
4

 
36,733

 
0.3
%
 
1,369

 
0.2
%
 
37.27

 
 
 
San Diego
 
29

 
890,052

 
7.1
%
 
40,522

 
6.6
%
 
45.53

 
 
 
San Francisco Bay Area
 
59

 
3,482,324

 
27.9
%
 
207,438

 
33.7
%
 
59.57

 
 
 
Greater Seattle
 
36

 
1,460,783

 
11.7
%
 
58,561

 
9.5
%
 
40.09

 
 
 
Total
 
191

 
7,993,737

 
64.1
%
 
$
400,100

 
65.0
%
 
$
50.05

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Includes 100% of annualized base rent of consolidated property partnerships.

20
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Stabilized Portfolio Quarterly Lease Expirations for 2019 and 2020
($ in thousands, except for annualized rent per sq. ft.)
 
 
 
# of Expiring
Leases
 
Total Square
Feet
 
% of Total
Leased Sq. Ft.
 
Annualized
Base Rent (1)
 
% of Total
Annualized
Base Rent
 
Annualized Rent
per Sq. Ft.
 
 
2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q3 2019
 
19

 
468,898

 
3.7
%
 
$
27,687

 
4.5
%
 
$
59.05

 
 
Q4 2019
 
19

 
195,687

 
1.6
%
 
9,755

 
1.6
%
 
49.85

 
 
Total 2019 (2)
 
38

 
664,585

 
5.3
%
 
$
37,442

 
6.1
%
 
$
56.34

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2020:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q1 2020
 
27

 
319,088

 
2.6
%
 
$
13,511

 
2.2
%
 
$
42.34

 
 
Q2 2020
 
20

 
181,380

 
1.5
%
 
7,948

 
1.3
%
 
43.82

 
 
Q3 2020
 
18

 
229,589

 
1.8
%
 
9,191

 
1.5
%
 
40.03

 
 
Q4 2020
 
22

 
357,532

 
2.8
%
 
16,913

 
2.7
%
 
47.30

 
 
Total 2020 (2)
 
87

 
1,087,589

 
8.7
%
 
$
47,563

 
7.7
%
 
$
43.73

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Includes 100% of annualized base rent of consolidated property partnerships.
(2)
Adjusting for leasing transactions executed as of June 30, 2019 but not yet commenced, the 2019 and 2020 expirations would be reduced by 486,434 and 155,408 square feet, respectively.


21
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Top Fifteen Tenants (1) 
($ in thousands)  
 
Tenant Name
 
Region
 
Annualized Base Rental Revenue (2)
 
Rentable
Square Feet
 
Percentage of
Total Annualized Base Rental Revenue
 
Percentage of
Total Rentable
Square Feet
 
 
Dropbox, Inc. (3)
 
San Francisco Bay Area
 
$
35,054

 
529,552

 
5.7
%
 
3.9
%
 
 
LinkedIn Corporation / Microsoft Corporation
 
San Francisco Bay Area
 
29,752

 
663,460

 
4.8
%
 
4.9
%
 
 
Adobe Systems Inc.
 
San Francisco Bay Area / Greater Seattle
 
27,928

 
513,111

 
4.5
%
 
3.8
%
 
 
salesforce.com, inc.
 
San Francisco Bay Area
 
24,076

 
451,763

 
3.9
%
 
3.3
%
 
 
DIRECTV, LLC
 
Greater Los Angeles
 
23,152

 
684,411

 
3.8
%
 
5.1
%
 
 
Box, Inc.
 
San Francisco Bay Area
 
22,441

 
371,792

 
3.6
%
 
2.7
%
 
 
Okta, Inc.
 
San Francisco Bay Area
 
17,122

 
207,066

 
2.8
%
 
1.5
%
 
 
Riot Games, Inc.
 
Greater Los Angeles
 
15,514

 
251,509

 
2.5
%
 
1.9
%
 
 
Synopsys, Inc.
 
San Francisco Bay Area
 
15,492

 
340,913

 
2.5
%
 
2.5
%
 
 
Viacom International, Inc.
 
Greater Los Angeles
 
13,718

 
211,343

 
2.2
%
 
1.6
%
 
 
Amazon.com
 
Greater Seattle
 
12,513

 
277,399

 
2.0
%
 
2.0
%
 
 
Concur Technologies
 
Greater Seattle
 
10,643

 
288,322

 
1.7
%
 
2.1
%
 
 
Cisco Systems, Inc.
 
San Francisco Bay Area
 
9,830

 
135,296

 
1.6
%
 
1.0
%
 
 
Capital One, N.A.
 
San Francisco Bay Area
 
9,170

 
117,993

 
1.5
%
 
0.9
%
 
 
AMN Healthcare, Inc.
 
San Diego County
 
9,001

 
176,075

 
1.5
%
 
1.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Top Fifteen Tenants
 
 
 
$
275,406

 
5,220,005

 
44.6
%
 
38.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
The information presented is as of June 30, 2019.
(2)
Includes 100% of annualized base rental revenues of consolidated property partnerships.
(3)
In May and June 2019, the Company completed construction and commenced GAAP revenue on its lease with Dropbox, Inc. for the first phase of The Exchange on 16th, which represents approximately 52% of the 750,000 square foot development project located in San Francisco’s Mission Bay district.



22
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

2019 Dispositions
($ in millions)

 
 
 
 
COMPLETED DISPOSITIONS
 
 
 
 
 
 
 
 
 
 
 
 
Property
 
Submarket
 
Month of
Disposition
 
No. of Buildings
 
Rentable
Square Feet
 
Sales
Price (1)
 
 
1st Quarter
 
 
 
 
 
 
 
 
 
 
 
 
None
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2nd Quarter
 
 
 
 
 
 
 
 
 
 
 
 
2829 Townsgate Road, Thousand Oaks, CA
 
101 Corridor
 
May
 
1
 
84,098
 
$
18.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL DISPOSITIONS
 
 
 
 
 
1
 
84,098
 
$
18.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
____________________
(1)
Represents gross sales price before the impact of commissions and closing costs.

23
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Consolidated Ventures (Noncontrolling Property Partnerships)

 
 
 
 
 
 
 
 
 
 
 
 
Property (1)
 
Venture Partner
 
Submarket
 
Rentable Square Feet
 
KRC Ownership %
 
 
100 First Street, San Francisco, CA
 
Norges Bank Real Estate Management
 
San Francisco
 
467,095
 
56%
 
 
303 Second Street, San Francisco, CA
 
Norges Bank Real Estate Management
 
San Francisco
 
740,047
 
56%
 
 
900 Jefferson Avenue and 900 Middlefield Road, Redwood City, CA (2)
 
Local developer
 
Redwood City
 
347,269
 
93%
 
 
 
 
 
 
 
 
 
 
 
 
____________________
(1)
For breakout of Net Operating Income by partnership, refer to page 36, Reconciliation of Net Income Available to Common Stockholders to Same Store Net Operating Income.
(2)
Reflects the KRC ownership percentage at time of agreement. Actual percentage may vary depending on cash flows or promote structure.

24
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Stabilized Development Projects
($ in millions)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
STABILIZED DEVELOPMENT PROJECTS
 
Location
 
Start Date
 
Completion
Date
 
Total Estimated Investment
 
Rentable
Square Feet
 
Office % Occupied
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1st Quarter
 
 
 
 
 
 
 
 
 
 
 
 
 
 
None
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2nd Quarter
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100 Hooper (1)
 
San Francisco
 
4Q 2016
 
2Q 2018
 
$
275.0

 
394,340

 
100%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
____________________
(1)
The project is comprised of 311,859 square feet of office and 82,481 square feet of PDR space. The office component is 100% occupied by Adobe and the PDR component is 86% leased and 20% occupied.



25
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

In-Process Development
($ in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Location
 
Construction Start Date
 
Estimated Stabilization Date (2)
 
Estimated Rentable Square Feet
 
Total Estimated Investment
 
Total Cash Costs Incurred as of
6/30/2019 (3)
 
Total Project % Leased
 
Total Project % Occupied
 
 
TENANT IMPROVEMENT (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
San Francisco Bay Area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Exchange on 16th (4)
 
San Francisco
 
2Q 2015
 
3Q 2020
 
750,000

 
$
585.0

 
$
498.0

 
99%
 
52%
 
 
Mixed-Use
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   One Paseo - Retail
 
Del Mar
 
4Q 2016
 
1Q 2020
 
96,000

 
100.0

 
90.6

 
94%
 
72%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL:
 
 
 
 
 
 
 
846,000

 
$
685.0

 
$
588.6

 
99%
 
55%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UNDER CONSTRUCTION
 
Location
 
Construction Start Date
 
Estimated Stabilization Date (2)
 
Estimated Rentable Square Feet
 
Total Estimated Investment
 
Total Cash Costs Incurred as of
6/30/2019 (3)
 
Office % Leased
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office / Life Science
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
San Francisco Bay Area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Kilroy Oyster Point - Phase I
 
South San Francisco
 
1Q 2019
 
3Q 2022
 
660,000

 
$
600.0

 
$
95.4

 
—%
 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      9455 Towne Centre Drive
 
University Towne Center
 
1Q 2019
 
2Q 2021
 
160,000

 
125.0

 
28.5

 
—%
 
 
Greater Seattle
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
333 Dexter (5)
 
South Lake Union
 
2Q 2017
 
3Q 2022
 
635,000

 
410.0

 
232.2

 
100%
 
 
Mixed-Use
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Greater Los Angeles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Netflix // On Vine - Office
 
Hollywood
 
1Q 2018
 
1Q 2021
 
355,000

 
300.0

 
151.7

 
100%
 
 
Living // On Vine - Residential
 
Hollywood
 
4Q 2018
 
4Q 2020
 
193 Resi Units

 
195.0

 
70.2

 
N/A
 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One Paseo - Residential
 
Del Mar
 
4Q 2016
 
3Q 2019 -
3Q 2020
 
608 Resi Units

 
375.0

 
320.2

 
N/A
 
 
      One Paseo - Office
 
Del Mar
 
4Q 2018
 
2Q 2021
 
285,000

 
205.0

 
121.3

 
60%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL:
 
 
 
 
 
 
 
 
 
$
2,210.0

 
$
1,019.5

 
55%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Represents projects that have reached cold shell condition and are ready for tenant improvements, which may require additional major base building construction before being placed in service.
(2)
For office and retail, represents the earlier of anticipated 95% occupancy date or one year from substantial completion of base building components. For multi-phase projects, interest and carry cost capitalization may cease and recommence driven by various factors, including tenant improvement construction and other tenant related timing or project scope.
(3)
Represents costs incurred as of June 30, 2019, excluding accrued liabilities recorded in accordance with GAAP. Upon adoption of ASC 842 “Leases” effective January 1, 2019, also excludes leasing overhead.
(4)
The Company has an executed 15-year lease for 100% of the office space with Dropbox, Inc., which commenced in phases beginning in the fourth quarter of 2018 through the fourth quarter of 2019. In the latter half of the second quarter of 2019, the Company delivered and commenced revenue recognition on Phase I of The Exchange on 16th, representing approximately 52% of the 750,000 square foot development project located in San Francisco’s Mission Bay district. The estimated stabilization dates for Phase II and Phase III are the fourth quarter of 2019 and the third quarter of 2020, respectively.
(5)
In June 2019, the Company executed a lease with a Fortune 50 publicly-traded company for 100% of 333 Dexter.


26
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Future Development Pipeline
($ in millions)
 
FUTURE DEVELOPMENT PIPELINE
 
Location
 
Approx. Developable
Square Feet (1)
 
Total Cash Costs Incurred as of 6/30/2019 (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
2100 Kettner
 
Little Italy
 
175,000 - 200,000
 
$
26.4

 
 
Santa Fe Summit – Phases II and III
 
56 Corridor
 
600,000 - 650,000
 
78.2

 
 
San Francisco Bay Area
 
 
 
 
 
 
 
 
 
 
Kilroy Oyster Point - Phases II - IV
 
South San Francisco
 
1,750,000 - 1,900,000
 
298.5

 
 
Flower Mart (3)
 
SOMA
 
2,300,000
 
239.9

 
 
TOTAL:
 
 
 
 
 
 
 
$
643.0

 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
The developable square feet and scope of projects could change materially from estimated data provided due to one or more of the following: any significant changes in the economy, market conditions, our markets, tenant requirements and demands, construction costs, new supply, regulatory and entitlement processes or project design.
(2)
Represents costs incurred as of June 30, 2019, excluding accrued liabilities recorded in accordance with GAAP.
(3)
On July 18, 2019, the San Francisco Planning Commission approved an initial office allocation of approximately 1.4 million square feet under Proposition M, as well as priority for a future phase allocation of approximately 350,000 square feet in 2021, with the remainder of the more than two million square feet of office space allocated after 2021. The Flower Mart Project’s development agreement must still be approved by the San Francisco Board of Supervisors and signed by the Mayor, which could be as early as October of this year. The Flower Mart is an approximately 2.3 million square foot mixed-use project located in Central SOMA.


27
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Capital Structure
As of June 30, 2019
($ in thousands)
 
 
 
 
 
 
 
 
 
 
 
Shares/Units
June 30, 2019
 
Aggregate Principal
Amount or
$ Value Equivalent
 
% of Total
Market
Capitalization
 
 
DEBT: (1)
 
 
 
 
 
 
 
 
Unsecured Line of Credit
 
 
 
$
375,000

 
3.5
%
 
 
Unsecured Term Loan Facility
 
 
 
150,000

 
1.4
%
 
 
Unsecured Senior Notes due 2023
 
 
 
300,000

 
2.8
%
 
 
Unsecured Senior Notes due 2024
 
 
 
425,000

 
3.9
%
 
 
Unsecured Senior Notes due 2025
 
 
 
400,000

 
3.7
%
 
 
Unsecured Senior Notes Series A & B due 2026
 
 
 
250,000

 
2.3
%
 
 
Unsecured Senior Notes due 2028
 
 
 
400,000

 
3.7
%
 
 
Unsecured Senior Notes due 2029
 
 
 
400,000

 
3.7
%
 
 
Unsecured Senior Notes Series A & B due 2027 & 2029
 
 
 
250,000

 
2.3
%
 
 
Secured Debt
 
 
 
260,427

 
2.4
%
 
 
Total Debt
 
 
 
$
3,210,427

 
29.7
%
 
 
EQUITY AND NONCONTROLLING INTEREST IN THE OPERATING PARTNERSHIP: (2)
 
 
 
 
 
 
 
 
Common limited partnership units outstanding (3)
 
2,023,287
 
$
149,339

 
1.4
%
 
 
Shares of common stock outstanding (4)
 
100,972,035
 
7,452,746

 
68.9
%
 
 
Total Equity and Noncontrolling Interests in the Operating Partnership
 
 
 
$
7,602,085

 
70.3
%
 
 
TOTAL MARKET CAPITALIZATION
 
 
 
$
10,812,512

 
100.0
%
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Represents the gross aggregate principal amount due at maturity before the effect of unamortized deferred financing costs and premiums and discounts.
(2)
Value based on closing share price of $73.81 as of June 30, 2019.
(3)
Includes common units of the Operating Partnership not owned by the Company; does not include noncontrolling interests in consolidated property partnerships.
(4)
Shares of common stock outstanding exclude 6,201,204 shares of common stock sold under forward equity sale agreements that remained to be settled as of June 30, 2019. On July 22, 2019, the Company fully and physically settled 5,000,000 shares of common stock in connection with the August 2018 forward transaction for net proceeds of approximately$354.3 million, which was used to pay down the unsecured revolving credit facility.



28
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Debt Analysis
As of June 30, 2019
 
 
 
 
 
 
 
 
 
 
TOTAL DEBT COMPOSITION
 
 
 
 
Percent of
Total Debt
 
Weighted Average
 
 
 
 
Interest Rate
 
Years to Maturity
 
 
Secured vs. Unsecured Debt
 
 
 
 
 
 
 
 
Unsecured Debt
 
91.9%
 
4.0%
 
6.5
 
 
Secured Debt
 
8.1%
 
3.9%
 
7.6
 
 
Floating vs. Fixed-Rate Debt
 
 
 
 
 
 
 
 
Floating-Rate Debt
 
16.4%
 
3.4%
 
3.1
 
 
Fixed-Rate Debt
 
83.6%
 
4.1%
 
7.3
 
 
 
 
 
 
 
 
 
 
 
Stated Interest Rate
 
 
 
4.0%
 
6.6
 
 
 
 
 
 
 
 
 
 
 
GAAP Effective Rate
 
 
 
4.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP Effective Rate Including Debt Issuance Costs
 
 
 
4.2%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
KEY DEBT COVENANTS
 
 
 
Covenant
 
Actual Performance
as of June 30, 2019
 
 
Unsecured Credit and Term Loan Facility and Private Placement Notes (as defined in the Credit Agreements):
 
 
 
 
 
 
Total debt to total asset value
 
less than 60%
 
30%
 
 
Fixed charge coverage ratio
 
greater than 1.5x
 
3.3x
 
 
Unsecured debt ratio
 
greater than 1.67x
 
2.93x
 
 
Unencumbered asset pool debt service coverage
 
greater than 1.75x
 
4.03x
 
 
 
 
 
 
 
 
 
Unsecured Senior Notes due 2023, 2024, 2025, 2028 and 2029 (as defined in the Indentures): 
 
 
 
 
 
 
Total debt to total asset value
 
less than 60%
 
35%
 
 
Interest coverage
 
greater than 1.5x
 
10.6x
 
 
Secured debt to total asset value
 
less than 40%
 
3%
 
 
Unencumbered asset pool value to unsecured debt
 
greater than 150%
 
282%
 
 
 
 
 
 
 
 

29
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Debt Analysis
($ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DEBT MATURITY SCHEDULE
 
Floating/
Fixed Rate
 
Stated
Rate
 
Maturity
Date
 
2019
 
2020
 
2021
 
2022
 
2023
 
After 2023
 
Total (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating
 
3.41%
 
7/31/2022
 
 
 
 
 
 
 
$
375,000

 
 
 
 
 
$
375,000

 
 
Floating
 
3.52%
 
7/31/2022
 
 
 
 
 
 
 
150,000

 
 
 

 
150,000

 
 
Fixed 
 
3.80%
 
1/15/2023
 
 
 
 
 
 
 
 
 
300,000

 
 
 
300,000

 
 
Fixed
 
3.45%
 
12/15/2024
 
 
 
 
 
 
 
 
 
 
 
425,000

 
425,000

 
 
Fixed
 
4.38%
 
10/1/2025
 
 
 
 
 
 
 
 
 
 
 
400,000

 
400,000

 
 
Fixed
 
4.30%
 
7/18/2026
 
 
 
 
 
 
 
 
 
 
 
50,000

 
50,000

 
 
Fixed
 
4.35%
 
10/18/2026
 
 
 
 
 
 
 
 
 
 
 
200,000

 
200,000

 
 
Fixed
 
3.35%
 
2/17/2027
 
 
 
 
 
 
 
 
 
 
 
175,000

 
175,000

 
 
Fixed
 
4.75%
 
12/15/2028
 
 
 
 
 
 
 
 
 
 
 
400,000

 
400,000

 
 
Fixed
 
3.45%
 
2/17/2029
 
 
 
 
 
 
 
 
 
 
 
75,000

 
75,000

 
 
Fixed
 
4.25%
 
8/15/2029
 
 
 
 
 
 
 
 
 
 
 
400,000

 
400,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total unsecured debt
 
3.96%
 
 
 
—

 
—

 
—

 
525,000

 
300,000

 
2,125,000

 
2,950,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed
 
3.57%
 
12/1/2026
 
—

 
3,224

 
3,341

 
3,462

 
3,587

 
156,386

 
170,000

 
 
Fixed
 
4.48%
 
7/1/2027
 
925

 
1,913

 
2,001

 
2,092

 
2,188

 
81,308

 
90,427

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total secured debt
 
3.89%
 
 
 
925

 
5,137

 
5,342

 
5,554

 
5,775

 
237,694

 
260,427

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
3.96%
 
 
 
$
925

 
$
5,137

 
$
5,342

 
$
530,554

 
$
305,775

 
$
2,362,694

 
$
3,210,427

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Represents the gross aggregate principal amount due at maturity before the effect of unamortized deferred financing costs and premiums and discounts.





30
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Management Statements on Non-GAAP Supplemental Measures
 
Included in this section are management’s statements regarding certain non-GAAP financial measures provided in this supplemental financial report and, with respect to Funds From Operations available to common stockholders and common unitholders (“FFO”), in the Company’s earnings release on July 24, 2019 and the reasons why management believes that these measures provide useful information to investors about the Company’s financial condition and results of operations.

Net Operating Income:

Management believes that Net Operating Income (“NOI”) is a useful supplemental measure of the Company’s operating performance. The Company defines NOI after the adoption of the new lease accounting standard ASC 842 as follows: consolidated operating revenues (rental income and other property income) less consolidated property and related expenses (property expenses, real estate taxes and ground leases). The Company defines NOI prior to the adoption of the new lease accounting standard ASC 842 as follows: consolidated operating revenues (rental income, tenant reimbursements and other property income) less consolidated property and related expenses (property expenses, real estate taxes, provision for bad debts and ground leases). Other real estate investment trusts (“REITs”) may use different methodologies for calculating NOI, and accordingly, the Company’s NOI may not be comparable to other REITs.

Because NOI excludes leasing costs, general and administrative expenses, interest expense, depreciation and amortization, other nonproperty income and losses, and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, reflects the consolidated revenues and expenses directly associated with owning and operating commercial real estate and the impact to operations from trends in occupancy rates, rental rates, and operating costs, providing a perspective on operations not immediately apparent from net income. The Company uses NOI to evaluate its operating performance on a portfolio basis since NOI allows the Company to evaluate the impact that factors such as occupancy levels, lease structure, rental rates, and tenant base have on the Company’s results, margins and returns. In addition, management believes that NOI provides useful information to the investment community about the Company’s financial and operating performance when compared to other REITs since NOI is generally recognized as a standard measure of performance in the real estate industry.

However, NOI should not be viewed as an alternative measure of the Company’s financial performance since it does not reflect general and administrative expenses, leasing costs, interest expense, depreciation and amortization costs, other nonproperty income and losses and the level of capital expenditures necessary to maintain the operating performance of the Company’s properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact the Company’s results from operations.

Same Store Net Operating Income:

Management believes that Same Store NOI is a useful supplemental measure of the Company’s operating performance. Same Store NOI represents the consolidated NOI for all of the properties that were owned and included in the Company's stabilized portfolio for two comparable reporting periods. Because Same Store NOI excludes the change in NOI from developed, redeveloped, acquired and disposed of and held for sale properties, it highlights operating trends such as occupancy levels, rental rates and operating costs on properties. Other REITs may use different methodologies for calculating Same Store NOI, and accordingly, the Company’s Same Store NOI may not be comparable to other REITs.

However, Same Store NOI should not be viewed as an alternative measure of the Company’s financial performance since it does not reflect the operations of the Company’s entire portfolio, nor does it reflect the impact of general and administrative expenses, leasing costs, interest expense, depreciation and amortization costs, other nonproperty income and losses and the level of capital expenditures necessary to maintain the operating performance of the Company’s properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact the Company’s results from operations.



31
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Management Statements on Non-GAAP Supplemental Measures, continued
 
Same Store Cash Net Operating Income:

Management believes that Same Store Cash NOI is a useful supplemental measure of the Company’s operating performance. Same Store Cash NOI represents the consolidated NOI for all of the properties that were owned and included in the Company’s stabilized portfolio for two comparable reporting periods, adjusted for the net effect of straight-line rents, amortization of deferred revenue related to tenant-funded tenant improvements, amortization of above and below market lease intangibles, and the provision for bad debts. Because Same Store Cash NOI excludes the change in NOI from developed, redeveloped, acquired and disposed of and held for sale properties, it highlights operating trends on a cash basis such as occupancy levels, rental rates and operating costs on properties. Other REITs may use different methodologies for calculating Same Store Cash NOI, and accordingly, our Same Store Cash NOI may not be comparable to other REITs.

However, Same Store Cash NOI should not be viewed as an alternative measure of the Company’s financial performance since it does not reflect the operations of the Company's entire portfolio, nor does it reflect the impact of general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other nonproperty income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of the Company's properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact the Company's results from operations.

EBITDA, as adjusted:

Management believes that consolidated earnings before interest expense, depreciation and amortization, gain/loss on early extinguishment of debt, gains and losses on depreciable real estate, net income attributable to noncontrolling interests, preferred dividends and distributions, original issuance costs of redeemed preferred stock and preferred units, and impairment losses (“EBITDA, as adjusted”) is a useful supplemental measure of the Company’s operating performance. When considered with other GAAP measures and FFO, management believes EBITDA, as adjusted, gives the investment community a more complete understanding of the Company’s consolidated operating results, including the impact of general and administrative expenses and acquisition-related expenses, before the impact of investing and financing transactions and facilitates comparisons with competitors. Management also believes it is appropriate to present EBITDA, as adjusted, as it is used in several of the Company’s financial covenants for both its secured and unsecured debt. However, EBITDA, as adjusted, should not be viewed as an alternative measure of the Company’s operating performance since it excludes financing costs as well as depreciation and amortization costs which are significant economic costs that could materially impact the Company’s results of operations and liquidity. Other REITs may use different methodologies for calculating EBITDA, as adjusted, and, accordingly, the Company’s EBITDA, as adjusted, may not be comparable to other REITs. The Company’s calculation of EBITDA, as adjusted, is the same as EBITDAre, as defined by NAREIT, as the Company does not have any unconsolidated joint ventures.
 




32
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Management Statements on Non-GAAP Supplemental Measures, continued
 
Funds From Operations:

The Company calculates Funds From Operations available to common stockholders and common unitholders (“FFO”) in accordance with the 2018 Restated White Paper on FFO approved by the Board of Governors of NAREIT. The White Paper defines FFO as net income or loss calculated in accordance with GAAP, excluding extraordinary items, as defined by GAAP, gains and losses from sales of depreciable real estate and impairment write-downs associated with depreciable real estate, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets) and after adjustment for unconsolidated partnerships and joint ventures. Our calculation of FFO includes the amortization of deferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenant improvement assets. We also add back net income attributable to noncontrolling common units of the Operating Partnership because we report FFO attributable to common stockholders and common unitholders.

Management believes that FFO is a useful supplemental measure of the Company’s operating performance. The exclusion from FFO of gains and losses from the sale of operating real estate assets allows investors and analysts to readily identify the operating results of the assets that form the core of the Company’s activity and assists in comparing those operating results between periods. Also, because FFO is generally recognized as the industry standard for reporting the operations of REITs, it facilitates comparisons of operating performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly, the Company’s FFO may not be comparable to all other REITs.

Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies using historical cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets, management believes that FFO along with the required GAAP presentations provides a more complete measurement of the Company’s performance relative to its competitors and a more appropriate basis on which to make decisions involving operating, financing and investing activities than the required GAAP presentations alone would provide.

However, FFO should not be viewed as an alternative measure of the Company’s operating performance since it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of the Company’s properties, which are significant economic costs and could materially impact the Company’s results from operations.

Funds Available for Distribution:

Management believes that Funds Available for Distribution available to common stockholders and common unitholders (“FAD”) is a useful supplemental measure of the Company’s liquidity. The Company computes FAD by adding to FFO the non-cash amortization of deferred financing costs, debt discounts and premiums and share-based compensation awards, amortization of above (below) market rents for acquisition properties and non-cash executive compensation expense then subtracting recurring tenant improvements, leasing commissions and capital expenditures and eliminating the net effect of straight-line rents, amortization of deferred revenue related to tenant improvements, adjusting for other lease related items and after adjustment for amounts attributable to noncontrolling interests in consolidated property partnerships. FAD provides an additional perspective on the Company’s ability to fund cash needs and make distributions to stockholders by adjusting FFO for the impact of certain cash and non-cash items, as well as adjusting FFO for recurring capital expenditures and leasing costs. Management also believes that FAD provides useful information to the investment community about the Company’s financial position as compared to other REITs since FAD is a liquidity measure used by other REITs. However, other REITs may use different methodologies for calculating FAD and, accordingly, the Company’s FAD may not be comparable to other REITs.


33
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Definitions Included in Supplemental
Annualized Base Rent:

Includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related to tenant-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existing leases, and expense reimbursement revenue. Additionally, the underlying leases contain various expense structures including full service gross, modified gross and triple net. Amounts represent percentage of total portfolio annualized contractual base rental revenue.

Change in GAAP/Cash Rents (Leases Commenced):

Calculated as the change between GAAP/cash rents for new/renewed leases and the expiring GAAP/cash rents for the same space. Excludes leases for which the space was vacant longer than one year, or vacant when the property was acquired by the Company.

Change in GAAP/Cash Rents (Leases Executed):

Calculated as the change between GAAP/cash rents for signed leases and the expiring GAAP/cash rents for the same space. Excludes leases for which the space was vacant longer than one year, or vacant when the property was acquired by the Company.

Estimated Stabilization Date (Development):

Management’s estimation of the earlier of stabilized occupancy (95%) or one year from the date of the cessation of major base building construction activities for office and retail properties and upon substantial completion for residential properties.

FAD Payout Ratio:

Calculated as current-quarter dividends accrued to common stockholders and common unitholders (excluding dividend equivalents accrued to restricted stock unitholders) divided by FAD.

First Generation Capital Expenditures:

Capital expenditures for newly acquired space, newly developed, redeveloped, or repositioned space. These costs are not subtracted in our calculation of FAD.

Fixed Charge Coverage Ratio:

Calculated as EBITDA, as adjusted, divided by gross interest expense (excluding amortization of deferred debt costs and debt discounts/premiums) and current year accrued preferred dividends.

FFO Payout Ratio:

Calculated as current-quarter dividends accrued to common stockholders and common unitholders (excluding dividend equivalents accrued to restricted stock unitholders) divided by FFO attributable to common stockholders and unitholders.


34
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Definitions Included in Supplemental, continued
GAAP Effective Rate:

The rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of any discounts/premiums, excluding debt issuance costs.

Interest Coverage Ratio:

Calculated as EBITDA, as adjusted, divided by gross interest expense (excluding amortization of deferred debt costs and debt discounts/premiums).

Net Effect of Straight-Line Rents:

Represents the straight-line rent income recognized during the period offset by cash received during the period that was applied to deferred rents receivable balances for terminated leases and the provision for bad debts recorded for deferred rent receivable balances.

Net Operating Income Margins:

Calculated as Net Operating Income divided by total revenues.

Retention Rates (Leases Commenced):

Calculated as the percentage of space either renewed or expanded into by existing tenants or subtenants at lease expiration.

Same Store Portfolio:

Our Same Store portfolio includes all of our properties owned and included in our stabilized portfolio for two comparable reporting periods, i.e., owned and included in our stabilized portfolio as of January 1, 2018 and still owned and included in the stabilized portfolio as of June 30, 2019. It does not include undeveloped land, development and redevelopment properties currently committed for construction, under construction, or in the tenant improvement phase and properties held-for-sale. We define redevelopment properties as those projects for which we expect to spend significant development and construction costs on existing or acquired buildings pursuant to a formal plan, the intended result of which is a higher economic return on the property.

Stated Interest Rate:

The rate at which interest expense is recorded per the respective loan documents, excluding the impact of the amortization of any debt discounts/premiums.

Tenant Improvement Phase:

Represents projects that have reached cold shell condition and are ready for tenant improvements, which may require additional major base building construction before being placed in service.


35
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Reconciliation of Net Income Available to Common Stockholders to Same Store Net Operating Income
(unaudited, $ in thousands)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
 
2019
 
2018
 
2019
 
2018
 
 
Net Income Available to Common Stockholders
 
$
42,194

 
$
27,549

 
$
79,097

 
$
63,795

 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
871

 
566

 
1,571

 
1,317

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
4,150

 
3,640

 
8,341

 
7,614

 
 
Net Income
 
47,215

 
31,755

 
89,009

 
72,726

 
 
Adjustments:
 


 


 

 


 
 
General and administrative expenses
 
19,857

 
21,763

 
43,198

 
37,322

 
 
Leasing costs
 
2,650

 
—

 
4,407

 
—

 
 
Depreciation and amortization
 
68,252

 
64,006

 
134,387

 
126,721

 
 
Interest income and other net investment loss (gain)
 
(616
)
 
(771
)
 
(2,444
)
 
(805
)
 
 
Interest expense
 
11,727

 
12,712

 
22,970

 
26,210

 
 
Gains on sales of depreciable operating properties
 
(7,169
)
 
—

 
(7,169
)
 
—

 
 
Net Operating Income, as defined (1)
 
141,916

 
129,465

 
284,358

 
262,174

 
 
Wholly-Owned Properties
 
122,010

 
111,671

 
251,249

 
226,081

 
 
Consolidated property partnerships: (2)
 
 
 
 
 
 
 
 
 
 
100 First Street (3)
 
6,027

 
4,507

 
5,638

 
9,255

 
 
303 Second Street (3)
 
8,072

 
7,551

 
15,870

 
15,328

 
 
Crossing/900 (4)
 
5,807

 
5,736

 
11,601

 
11,510

 
 
Net Operating Income, as defined (1)
 
141,916

 
129,465

 
284,358

 
262,174

 
 
Non-Same Store GAAP Net Operating Income (5)
 
(13,370
)
 
(6,724
)
 
(24,998
)
 
(12,973
)
 
 
Same Store GAAP Net Operating Income
 
128,546

 
122,741

 
259,360

 
249,201

 
 
GAAP to Cash Adjustments:
 


 
 
 
 
 
 
 
 
GAAP Operating Revenues Adjustments, net (6)
 
(18,720
)
 
(11,819
)
 
(38,676
)
 
(22,372
)
 
 
GAAP Operating Expenses Adjustments, net (7)
 
(29
)
 
5,387

 
(34
)
 
5,098

 
 
Same Store Cash Net Operating Income
 
$
109,797

 
$
116,309

 
$
220,650

 
$
231,927

 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Please refer to pages 31-32 for Management Statements on Net Operating Income, Same Store Net Operating Income and Same Store Cash Net Operating Income.
(2)
Reflects GAAP Net Operating Income for all periods presented.
(3)
For all periods presented, an unrelated third party entity owned approximately 44% common equity interests in two properties located at 100 First Street and 303 Second Street in San Francisco, CA.
(4)
For all periods presented, an unrelated third party entity owned an approximate 7% common equity interest in two properties located at 900 Jefferson Avenue and 900 Middlefield Road in Redwood City, CA.
(5)
Includes the results of three office properties we acquired in the first quarter of 2018, one office property we acquired in the fourth quarter of 2018, eleven properties disposed of during the fourth quarter of 2018, one office property disposed of during the second quarter of 2019 and our in-process and future development projects.
(6)
Includes the net effect of straight-line rents, amortization of deferred revenue related to tenant-funded tenant improvements and amortization of above and below market lease intangibles.
(7)
Includes the amortization of above and below market lease intangibles for ground leases and the provision for bad debts.

36
Kilroy Realty Corporation
Second Quarter 2019 Supplemental Financial Report

Reconciliation of Net Income Available to Common Stockholders to EBITDA, as Adjusted
(unaudited, $ in thousands)
 
 
 
Three Months Ended June 30,
 
 
 
 
2019
 
2018
 
 
Net Income Available to Common Stockholders
 
$
42,194

 
$
27,549

 
 
Interest expense
 
11,727

 
12,712

 
 
Depreciation and amortization
 
68,252

 
64,006

 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
871

 
566

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
4,150

 
3,640

 
 
Gains on sales of depreciable operating properties
 
(7,169
)
 
—

 
 
EBITDA, as adjusted (1)
 
$
120,025

 
$
108,473

 
 
 
 
 
 
 
 
________________________
(1)
Please refer to page 32 for a Management Statement on EBITDA, as adjusted. The Company’s calculation of EBITDA, as adjusted, is the same as EBITDAre, as defined by NAREIT, as the Company does not have any unconsolidated joint ventures.


37